Ahead of the Open: Grains, Soy Bounce on Weather, China Trade Talk Optimism

Posted on 09/23/2019 7:47 AM

Grain Calls

Corn: Up 2 to 3 cents
Soybeans: Up 9 to 13 cents
Wheat: Up 3 to 8 cents

General Comment: Corn, soybeans and wheat are seen opening strong this morning on the prolonged wet U.S. weather pattern and some developing weather problems overseas. Market also gains on improved trade sentiment after last week’s U.S./China talks went well.  The U.S. growing season is ending wet just like it began the planting season, increasing concerns about yields and quality of this year’s U.S. corn, soybean and wheat crops. It is wet for the next week from Missouri to Michigan, limiting harvesting as traders remain focused on actual harvest results to get a better handle on U.S. crop potential ahead of the USDA Oct. 11 production update. 
American rainfall has little to no rain forecast for all the Argentine growing regions over the next 10 days. The same dry forecast is expected in the northern growing states of Brazil, but southern regions will see precip through the week and into the 6- to 10-day period. The forecasts are drier for Brazil this week than expected late last week when soybean prices slumped. 

The weekend saw rains over southern Saskatchewan and southern Manitoba for the Canadian Prairies Saturday and showers over Alberta Sunday, raising concerns about spring wheat crops.  Cold air overspread Russia as expected and reached into a part of Eastern Europe during the weekend. Frost and freezes occurred in many areas, some of which was earlier than usual. Most summer crops were adequately mature enough to withstand the cold to avoid serious damage. Western and northern most parts of Ukraine also reported some frost and light freezes during the weekend along with Scandinavia, Belarus and the Baltic States. A few areas in central and Eastern Europe reported frosty conditions with lows in the 30s and lower 40s Fahrenheit. Several light freezes also occurred in Europe, but they were not nearly as significant as they were in Russia. Another full week of cold weather is expected with additional frost and freezes likely in crop areas from Ukraine and easternmost Europe through Russia. No freezes are expected in southern Ukraine or Russia’s Southern Region.

China should front end load some buying this week in front of their holiday the first week of October, but will it be U.S. or South American origin supplies. China’s cancellation of a planned visit to farms in the American heartland was done at the request of the U.S., Bloomberg’s Washington bureau reports, an indication the change wasn’t caused by a negative turn in the lower-level discussions held in Washington last week. China did not cancel planned visits to farms in the United States because of challenges in trade negotiations with the U.S., the country's senior agricultural representative in the talks said, according to a report by state-backed media group Yicai on Sunday, who added the talks last week achieved a "good outcome."  The farm visits were planned separately to the trade talks, and the U.S. side has said they will send out another invite another time, the official said, according to the report. "There was a good outcome from the negotiations in the agriculture area too,” said Han Jun, the deputy director of the Office of the Central Rural Work Leading Group, at an event in Washington, D.C., according to Yicai. “The two sides had thorough and candid communications," Han said.  China is willing to further expand the scale of Sino-U.S. agricultural trade and deepen cooperation between the two countries in the agriculture sector, Han said, according to the report. Top Chinese officials are scheduled to travel to Washington around Oct. 10 to resume trade negotiations, according to Bloomberg.

Meanwhile, Hong Kong protesters gathered at shopping malls, set blazes and clashed with police in the 16th weekend of protests, as the city braces for large-scale demonstrations planned for Oct. 1’s 70th anniversary of Communist rule in China.

President Donald Trump is set to meet Wednesday with Japanese Prime Minister Shinzo Abe, as the countries seek to sign a trade deal.

Rumors of new Argentine export tax increase last week were not confirmed, but export licenses were not immediately approved on Thursday.  General elections are 5 weeks away and the Argentine farmer biggest worry is about agricultural policy to be implemented starting in 2020. Seems likely an export tax hike for a government without access to international credit markets and needing fresh income.  Argentine farmer selling continues above expectations, as farmers need cash to start 2019-20 planting season in a context of very high interest rates and little funding from local banks.

USDA’s daily export sales reporting service announced no new large sales by private exporters.  

Corn: Futures opened steady to weaker and have been climbing all night, rising near last week’s high in December futures at $3.74 ¼. Strong resistance remains between $3.77 to $3.80 and $3.92 ¾. The weekly CFTC report on Friday showed funds increased net-short by 34,227 contracts to 170,626 futures and options in the week ended Sept. 20, the largest since May. Commercials cut net-short 27,570 to 158,333 contracts last week.

SoybeansNovember opened steady to weaker and have moved to a three-session high overnight and rising back above the 100-day moving average. Momentum turned higher overnight. Funds bought back 43,556 soybean futures and options contracts and now stand net-short 48,181 contracts, smallest bearish positions since July 23. In the same week increased net-short futures and options contracts by 46,756 to 59,398 contracts.

Wheat: Futures are also rebounding from early overnight weakness but remain below the five-week highs reached last week. Spring wheat continue to lead higher on U.S. and Canadian crop concerns. Funds cut net-short SRW wheat positions for a second week by 1,812 futures and options to 12,577 contracts.  Funds also reduced HRW short positions by almost 4,000 contracts to 37,572 net-short futures and options. Funds increased spring wheat net shorts by 266 contracts to a new record net-short of 23,071 contracts, before prices jumped at the end of last week on short covering.

Livestock Calls

Cattle: Steady to firm
Hogs: Weaker

Cattle: Cattle seen steady to higher in a continuation of last week’s gain with cash bids and a neutral to bullish USDA Cattle on Feed report on Friday afternoon. Cattle placed on feed in August were 2.7% below the average forecast. This meant the Sept. 1 cattle on feed was 0.6% below the average forecast and 143,000 head less than a year ago. The placement weight breakdown showed that the year-on-year decline in placements was evenly spread across all categories. August marketings were up 3.0% on last year signaling very current marketings. Last week’s cattle slaughter was larger than forecast at an estimated 658,000 head, versus 653,472 head last year. Boxed beef cutout values were lower on Choice and weak on Select on light to moderate demand. The Choice cutout declined to $216.97 per cwt on Friday from $220.88 a week earlier and the Select cutout was $191.72 on Friday from $198.60 a week earlier.  

Hogs: Look for a weak start this morning. Cash hogs were mixed to end last week with the national average price sliding 22 cents on Friday but Iowa/Minnesota gaining 22 cents. However, National average prices fell $1.13 last week while Iowa/Minnesota fell $2.08.  China's pork imports rose 76% in August from the same month a year earlier, customs data showed on Monday, as the world's top consumer of the meat stocked up on supplies after African swine fever decimated its pig herd. China imported 162,935 MT of pork last month, up 76% from August 2018 but down from July's 182,227 MT. A year-long epidemic of deadly African swine fever has reduced the world's top pig herd by almost 40%, according to official data, pushing pork prices to a record. China's pork imports for the first eight months of the year were 1.16 MMT, up 40.4% from a year earlier, beef imports for the first eight months to 980,334 MT, a 54% jump from a year ago and imports of this year were 483,743 MT, a 48% rise.  China's official Xinhua news agency said earlier this month that the country will buy more agricultural products from the United States including pork, waiving tariffs on the imports. The news report did not give further details.

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